For investors looking for chances where a company's market price seems separate from its basic financial condition, a methodical value investing method can be a useful instrument. This tactic, established by Benjamin Graham and famously used by Warren Buffett, centers on finding stocks selling for less than their calculated worth. The aim is to discover sound businesses that are currently unpopular or ignored, offering a possible buffer for the investor. One way to find these possibilities is by searching for companies that rate well on basic valuation measures while also showing good operational condition, earnings, and expansion, a mix that indicates a stock could be priced low instead of just being weak.
A recent search using this "reasonable value" method has pointed to Exelixis Inc (NASDAQ:EXEL) as a possibility that deserves more review. The oncology-centered biopharmaceutical company, recognized for its main cancer treatment cabozantinib, shows a financial picture that matches the central ideas of value investing. Based on a full basic examination, Exelixis receives a total basic rating of 8 out of 10, with especially good scores in the parts important for a value-focused evaluation.
Valuation Measures: The Center of the Chance
The main draw for a value investor is a good valuation, meaning the stock price may not completely show the company's value. Exelixis's valuation rating of 8/10 is formed on several strong data items that indicate it is priced cautiously compared to both its field and its own future.
- Price Ratios: While its regular Price/Earnings (P/E) ratio of 18.68 may look reasonable, it seems better in comparison. This ratio is lower than about 95% of its biotechnology field companies and is under the present S&P 500 average. More future-focused measures are even more convincing.
- Future-Looking Value: The Price/Forward Earnings ratio of 13.65 is viewed as low, doing better than 96.6% of the field. Also, its Enterprise Value to EBITDA and Price/Free Cash Flow ratios are more attractive than over 96% of field rivals.
- Growth Consideration: Importantly, the valuation includes future expansion. The company's low PEG ratio, which changes the P/E for expected earnings growth, shows the stock's price may not be fully considering its growth path. With earnings forecast to grow over 25% each year in the next few years, a higher valuation could be reasonable, forming the possible difference value investors look for.
Financial Condition: A Solid Base
A low-priced stock is only a good investment if the company is financially stable. This is where the "buffer" idea is critical, investing in a company with a good balance sheet lowers the chance of lasting loss. Exelixis does very well here, having a nearly perfect condition rating of 9/10.
- Solvency: The company has no debt, putting it with the best in its field for financial leverage and adaptability. Its Altman-Z score of 12.90 shows a very small short-term chance of financial trouble, doing better than most of its field.
- Liquidity: With a Current Ratio of 3.75 and a Quick Ratio of 3.68, Exelixis has enough liquid assets to easily meet its short-term needs, giving operational steadiness in different market situations.
Earnings: Quality at a Fair Price
Value investing is not about buying bad companies inexpensively, it is about buying good companies for less. Exelixis shows high-quality earnings, getting a rating of 8/10. This confirms it is a basically profitable business, not a speculative recovery case.
- Good Returns: The company produces notable returns on its assets (24.01%) and equity (31.37%), doing better than over 97% of its biotechnology peers. Its Return on Invested Capital (ROIC) of 26.31% is much higher than its cost of capital, meaning it is building real shareholder value.
- Strong Margins: Exelixis keeps excellent margins, including a Gross Margin of 96.6% and an Operating Margin of 35.9%, which place it near the best in its field. While some margin reduction has happened in recent years, the actual levels stay very high.
Growth Picture: The Mechanism for Value Achievement
For the low valuation difference to shrink, the company must have a believable route for growth. Exelixis shows a good growth rating of 7/10, mixing a strong past record with positive future outlooks.
- Past Results: Over the last year, Earnings Per Share grew by a notable 44.5%, with a five-year average yearly EPS growth of 12.7%. Revenue has also increased well, growing almost 10% last year and over 17% yearly on average in recent years.
- Future Outlooks: Analyst forecasts expect continued good growth, with EPS likely to rise by about 25.7% each year over the next few years. This expected speed-up in earnings growth, when joined with its current valuation, is a main element that makes the stock interesting from a value view.
Summary
Exelixis offers a strong example for the value investing search that found it. It is not a failing company selling at a very low price, but instead a profitable, financially sound, and expanding business whose stock looks moderately priced compared to these qualities. The mix of a low valuation (especially on future-focused measures), a very strong debt-free balance sheet, high earnings, and a clear growth path fits the aim of finding underpriced quality. For the value investor, this picture suggests the market may be undervaluing the company's lasting earnings ability and future possibilities.
This review of Exelixis came from a methodical hunt for stocks that match certain basic conditions. Investors curious about finding other companies that fit a similar "reasonable value" picture can look into the search method more and see other outcomes using this set stock search.
Disclaimer: This article is for information and learning only and does not form a suggestion to buy, sell, or keep any security. The examination is based on given data and basic ratings, which can change. Investing includes risk, including the possible loss of original funds. Readers should do their own complete study and think about their personal financial situation and risk comfort before making any investment choices.
